‘Flushed’ drains DreamWorks

Dud forces studio to take write down

“Flushed Away” was a big drain on DreamWorks Animation last quarter, as Jeffrey Katzenberg’s toon studio took a $109 million writedown on its unsuccessful CGI collaboration with Aardman.

As a result, though revenue rose 18% from last year to $204.3 million, the company swung from a $63.2 million profit to a $21.3 million loss.

Studio beat Wall Street expectations, however, thanks in large part to a strong perf by its library titles, and its stock was stable in after-hours trading.

DreamWorks previously announced it would be taking a write-down on “Flushed,” though at the time, it didn’t specify the amount (Daily Variety, Nov. 16). Pic, which is estimated to have cost more than $140 million, grossed just $64 million in the U.S. and $113 million overseas.

Though it hasn’t even hit homevideo yet, DreamWorks doesn’t expect “Flushed” to ever overcome its writedown and contribute revenue.

Last year’s Aardman-produced pic “Wallace & Gromit: Curse of the Were-Rabbit,” also did poorly. However, the stop-motion toon was cheaper, and DreamWorks’ write-down was a comparatively small $25 million.

“It’s difficult, because we’re proud of the work they’ve done, but this is just not a good business financially for our company,” Katzenberg told Daily Variety.

“Over the Hedge,” the studio’s May release, did relatively well, selling 9.8 million DVDs by Dec. 31 and contributing $104.1 million in revenue for the quarter. Worldwide gross was $336 million.

In the same quarter last year, the studio’s May release, “Madagascar” sold 14.2 million homevid units and generated $152.3 million. Its total gross was $533 million, which explains why “Madagascar 2″ is in production for 2008, while “Hedge” likely won’t have a sequel.

Katzenberg told investors on a conference call that the studio has been changing development processes in hopes that future pics will stand out more clearly against other CGI toons.

For the full year, the company made $15.1 million on $395 million in revenue, down 86% and 15%, respectively.

With no money coming in from “Flushed Away,” DreamWorks is counting almost entirely on May’s “Shrek the Third” as its 2007 revenue driver. Pic will be released between two other huge franchise sequels — two weeks after “Spider-Man 3″ and a week before “Pirates of the Caribbean: At World’s End.”

“Historically, I don’t think there has been an analogous situation,” said Katzenberg, who cautioned investors that the crowded market may have an impact on B.O.

Next fall, DWA releases Jerry Seinfeld starrer, “Bee Movie.” Even if it’s successful, pic likely won’t generate revenue until 2008. Company also noted that “Bee Movie” will have a cost structure similar to the studio’s sequels, which typically cost more than $150 million, due to Seinfeld’s heavy involvement.

Looking to boost its share price, which has mostly stayed below $30 since mid-2005, DreamWorks Animation announced it will spend $150 million of its $500 million-plus cash reserve on a stock buyback over the next 18 months. In late 2004, DWA shares hit the market at $28.

Company is on the hunt for a new chief financial officer to replace the departing Kris Leslie. Until a new CFO is found, prexy Lew Coleman will fill her role.

DWA stock closed down 3% at $26.80 Tuesday before earnings were announced.